Beyond the Hundred Days
GASS, OSCAR
Kennedy must set aside idea of a Rooseveltian beginning to avoid political defeats BEYOND THE HUNDRED DAYS By Oscar Gass ON ELECTION DAY in 1960, liberal Democrats could not bear remembering the...
...They are built best when designed and constructed according to their own time requirements...
...All this is necessarily very approximate...
...3. When, similarly, unemployment has been officially enumerated, for any three-month period, as greater than 7.5 per cent, the effective tax liability, for the next three months, should, again, first be computed as Normal and then reduced by 50 per cent...
...But it holds a great danger—that it will be regarded as a general solution of the national medical problem...
...The natural gas interests want only to be freed of producer price regulation —an object, it is to be hoped, they will not achieve...
...It omits critical issues, for example, the expensing of intangibles...
...Given an appropriate, cyclically -adjusted revenue system, we should not need to rely heavily on the clumsy public works instrument of economic stabilization...
...The potential for the fourth quarter of 1961 is a GNP in the range of $530 to $570 billion, at today's prices...
...A sound program would, I believe, rely most on the second approach...
...The military establishment consumed 13.5 per cent of the Gross National Product (GNP) in 1953 and 9 per cent OSCAR GASS, a consulting economist in Washington, D.C., has contributed to Commentary and to the New Republic...
...The present Board has failed...
...Two questions may be instanced: Oil depletion: The conventional liberal position is for the birds...
...Kennedy must set aside idea of a Rooseveltian beginning to avoid political defeats BEYOND THE HUNDRED DAYS By Oscar Gass ON ELECTION DAY in 1960, liberal Democrats could not bear remembering the modest Harry Truman record of domestic accomplishments after the election victory of 1948...
...The Kennedy Administration must put away wish-fancies: There will be no honeymoon, no Hundred Days...
...We need public construction steadily, as we need its objects—schools, hospitals, water, power, roads, parks, etc...
...Roosevelt therefore found a willingness to go along with Presidential initiative not often matched in our history...
...When accelerated to combat a recession, public works commonly reach their construction peak during the subsequent boom...
...A minimum wage bill belongs in the same category as distressed areas—to be passed early because long-promised...
...A bill to assist expansion of housing construction also belongs in any first economic program...
...American complacency at having accomplished "the Welfare State" is premature...
...second, long-term rates payable by utilities in electric power, natural gas and communications...
...No quick international successes are to be had...
...second is removal of the interest-cost barrier to expansion of construction...
...A budgetary addition to the resources for urban redevelopment can help—but its fruits will be harvested long after...
...The reduction was by one-third...
...Memory moved back comfortingly to 1933—back to the productive Hundred Days that followed Franklin D. Roosevelt's first inauguration...
...Public works are not business cycle medicine...
...In Recession (unemployment up to 7? per cent), the role of accelerating public works can be small...
...2) through supporting farm incomes by Government payments, while leaving prices free...
...Definitely not for inclusion in a first program...
...A DISTRESSED AREAS bill belongs in the Kennedy Administration's first economic program...
...Today the position is far worse...
...These have been years of high interest rates, for which analogies can be found only by going back three or four decades...
...A welfare measure rather than an economic one, it should be passed promptly and as nearly as possible in the form presented by the Democratic leadership in the special session...
...Only in Depression (unemployment over 7? per cent), when normal economic processes are in danger of breaking down, will we need large temporary expansions in public works activities...
...But individual income tax collections were only $.5 billion less in the fiscal year ending June 30, 1958, than a year earlier...
...Unemployment Compensation...
...Tax Reform...
...If he tries to give high priority to a new program of farm legislation along this approach, he will be defeated—and deservedly...
...Our present revenue system does not stabilize...
...For the long term, our emphasis would be better concentrated on knotty economic problems and distressed people, rather than on distressed areas...
...The new President should promptly accept the resignation of William McChesney Martin and of other members of the Board of Governors of the Federal Reserve System...
...It has been slow and notably unsuccessful when, as recently, it has eventually moved in the direction of lowering interest rates...
...and 2) a contribution to stabilizing total economic activity when the normal flow of earned income diminishes...
...But surely this is a misreading of history...
...Interest rates payable by utilities should move down proportionately...
...The automatic feature of the above redesign removes this difficulty...
...This would eliminate the present stimulus to financing through debt in preference to equity and would also protect low-earnings corporations...
...I do not believe any informed and deliberate administration would now remove petroleum import control...
...Tax Reduction...
...Surplus facilities are characteristic particularly in manufacturing and mining...
...The so-called built-in stabilizer did not perform, and it will never perform until it is redesigned...
...Its members are wedded to an unsound monetary policy of high interest rates and of unduly restricted monetary supply...
...Otherwise unemployment insurance fails to meet its twin objects: 1) equitable compensation to those on whom our society imposes unemployment without their choosing...
...Public Works...
...Competitive atomic energy has now been put off to the 1970s...
...Allowing for these factors, I would characterize activity levels in the U.S...
...A major shift in policy will require major changes of personnel...
...Other omissions demand explanation, and only by this explanation do we clarify the meaning of what is here included...
...farm program relies most on the first approach...
...It should have been more than twice that amount—given unemployment averaging 4.7 million...
...A national education program belongs to long-term planning to provide the means for the cultural future of the American people...
...In the average month, 4.7 million people were unemployed, but only 2.7 million received unemployment compensation...
...The mortgage rate paid to banks and insurance companies on housing and other construction, by prime borrowers, is today 6 per cent to 6? per cent in Washington, D.C...
...Energy...
...A bill providing medical aid for the aged also belongs in the first program...
...The individual income tax is our great potential fiscal stabilizer...
...At full employment, the Federal individual income tax would today yield over $50 billion (individual income plus employment taxes over $65 billion...
...It did not serve this role in the 1957-58 recession...
...The domestic petroleum industry, having failed to achieve satisfactory profits through competition since Suez, now looks forward to comfortable profits achieved through the supply management of Federal import control joined with state limitation of production...
...It fails to recognize percentage depletion as merely one tricky problem in the capital gains field...
...And it greatly overestimates the revenue gain from abolishing percentage depletion—failing to recognize the large possibilities of selling (and buying) productive wells and charging the cost off under conventional cost depletion...
...Kennedy's immediate economic inheritance is not brilliant, but the potential improvement is correspondingly great...
...rather than merely the conventional deference accorded any incumbent President, Kennedy needs important, prompt domestic successes...
...Also, the Democrats in Congress are not at all a ship's crew looking for a pilot...
...Eisenhower took the most drastic step in energy policy in decades when, in March 1959, he put petroleum imports under Government control...
...Kennedy will apparently take office against a fourth quarter 1960 background of over 6 per cent total unemployment, much part time, more short time, and a GNP of around $500 billion...
...In 1958, when the U.S...
...As with medical care, only a small corner of educational needs can get into any first program—for a hundred days or even one hundred and fifty...
...nothing else will save them...
...The existing U.S...
...The monetary conditions will then have been created for revival and expansion of healthy economic activities in the two sectors most sensitive to interest rate changes...
...These things, provided by public funds, are among our most important economic objects...
...It will be tempting and easy to move far along the path from which Eisenhower withdrew...
...Economic considerations are distinctly secondary...
...It has been singularly injudicious in the timing of restrictive action...
...At best, it is a crutch for the weak and exploited, but it is not a fundamental solution for anything...
...First is provision for the unemployed...
...While the economy could be in better condition, the leadership role of the business community is now quite unchallenged...
...The coal interests wait hopefully, if impatiently, for the growth in the appetite of electric-power boilers...
...had its highest unemployment since 1941, our unemployment compensation system clearly demonstrated inadequacy...
...Interest Rates...
...Important but not urgent...
...and 3) through restricting supply, and making the consumer pay...
...I therefore call attention especially to four groups of measures which, I believe, have no place in a first economic program, when this program is selected primarily to meet the most pressing national needs but also, secondarily, to give the Kennedy Administration a good political start...
...And this creeping accumulation of unemployment has taken place before the more rapid enlargement of the labor force due, in the next years, from the sharp increase in births that began after wartime recovery from the Great Depression...
...That was the kind of thing the election of John F. Kennedy would mean...
...in the 1959-60 rise it hovered around four million...
...4. On the other hand, when, for any three-month period, unemployment has run less than 2? per cent, the effective tax liability for the next three months should first be computed as Normal and then increased by 25 per cent...
...The great increase in output achieved from 1949 to 1953 (about 26 per cent) had been powered primarily by increasing military demand...
...Such are: national transportation policy, monetary reorganization, natural resource development, and adjustment of the U.S...
...it merely drags...
...The redesign should embody the following elements: 1. The present individual income tax liabilities should be designated, by statute, as Normal and related to Normal unemployment...
...Unemployment then rose from an average of 4.1 per cent (Normal) in the first six months of 1957 to an average of 6.8 per cent (Recession) in the same months of 1958...
...In recent years, the Board has impeded the growth of the American economy and so made the U.S...
...Temporary tax reductions, widely recognized to be desirable during recent recessions, have been avoided because of the anticipated difficulty of securing new legislation to increase taxes again when the recession had passed...
...No Hundred Days issue here...
...they are daily food...
...Equity, economics and politics unite to give legislation for expanding unemployment compensation first priority...
...To acquire the standing of a great national leader...
...market an unattractive place to invest funds for equity capital appreciation...
...Corporate taxation: There is a significant possibility of structural improvement through allowing a credit (quasi-interest) of up to, say, 3.5 per cent for dividends paid and then maintaining total Treasury revenue unchanged through raising the nominal tax rate...
...In other spheres, the U.S...
...has only fragments of an energy policy...
...SOME OMISSIONS from a first economic program may command ready understanding...
...The electric power industry, stimulated by public power competition, is among the most progressive and thriving in the nation...
...If we are intelligent and fortunate, we may not require this kind of large-scale resort to emergency public works so often as once in a generation...
...But, with that defeat, much more will go down in ruin...
...2. When, for any three-month period, unemployment has been officially enumerated as greater than 5 per cent but less than 7.5 per cent, for the next three months the effective tax liability should be first computed according to the Normal and then reduced by 25 per cent...
...But the major immediate assistance must come through sharply lower interest rates...
...The Eisenhower years, from 1953 through 1960, constituted a period of meager growth in the national economic output...
...in the 1955-57 upswing it remained around three million...
...Roosevelt came to the Presidency in a shattered economy, when the leadership of businessmen and bankers was temporarily discredited...
...The Congress was bewildered and seeking new directions...
...It needs urgently a redesign in the direction of stabilization...
...Continental seasonality and easy dismissal give the American economy more inherent unemployment than some others...
...We need to revise our thinking...
...Moreover, individual income plus employment tax collections actually increased by $.6 billion...
...and third is enactment of cyclically-adjusted tax reduction...
...It has been promised and will be of some assistance, but it will not solve any major problem because it does not deal with the basic causes of structural unemployment...
...Perhaps the most fundamental economic action of the Eisenhower Administration was to reduce the weight of military demand...
...Kennedy has chosen the third approach—in my judgment, the worst of the three...
...per cent 5. Depression unemployment over 7? per cent A GNP of $530 billion by fourth quarter 1961 would correspond to low Normal, while $570 billion would approach Full Employment...
...The climax came in 1959-60, when the Federal Reserve authorities, the Treasury and the White House joined the private financial community to mount an unparalleled campaign in favor of raising interest charges...
...There is excess capacity of 35 per cent or more now in steel, crude petroleum, automotives, machinery and chemicals...
...If we accept the fundamental policy of subsidizing agriculture, as I do, there are three main approaches: 1) through supporting farm prices by Government payments...
...Most actual programs involve some elements of all three approaches...
...It involves some minuses as well as pluses...
...It should be the purpose of a sound monetary policy to knock this rate down by approximately 1? per cent in the shortest possible time...
...The interest rates that are most restrictive of economic growth today fall in two related groups: first, long-term rates on mortgages for housing and other construction...
...The average year's expansion amounted to about .8 per cent per capita...
...While output has grown slowly, there has been great increase in plant capacity...
...IN ECONOMIC POLICY, the post-election mettle of the Kennedy Administration will be tested by its performance in meeting three challenges...
...The average of the past 90 years is about 1.7 per cent...
...economy as follows: 1. Inflationary unemployment below 2? per cent 2. Full Employment unemployment 2?-3 per cent 3. Normal unemployment 2?-5 per cent 4. Recession unemployment 5-7...
...A Pandora's box...
...With Kennedy it will not be so...
...From June through September 1960, less than half of the unemployed received unemployment compensation...
...Agriculture...
...international balance of payments...
...In the 1951-53 expansion unemployment stabilized around two million...
...has experienced a sustained accumulation of unemployment...
...That it is not...
...In my judgment, petroleum import control is fundamentally sound—economically and for the national security...
...Eisenhower reversed that...
...In 1958 the total paid out in unemployment compensation was about $4 billion...
...We must get away from the leading strings of Papa Keynes...
...There must be a new Hundred Days...
...The U.S...
...Such large unutilized reserves of labor and facilities have been accumulated that the national economy could now produce $50 billion more output without strain...
Vol. 43 • December 1960 • No. 47
